vat

Definition of vat

(Entry 1 of 3)

1: a large vessel (such as a cistern, tub, or barrel) especially for holding liquors in an immature state or preparations for dyeing or tanning

2: a liquor containing a dye converted into a soluble reduced colorless or weakly colored form that on textile material steeped in the liquor and exposed to the air is converted by oxidation to the original insoluble dye and precipitated in the fiber

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First Known Use of vat

History and Etymology for vat

Noun

Middle English vet, vat, southern variant of fat, fet, going back to Old English fæt, going back to Germanic *fata- (whence Old Saxon fat "vessel," Old High German faz); akin to Lithuanian púodas "pot"

The first known use of vat was
in the 12th century

Financial Definition of VAT

What It Is

A value added tax (VAT) is a consumption tax added to a product's sales price. It represents a tax on the "value added" to the product throughout its production process.

How It Works

The VAT system is invoice-based. Each seller in the product chain includes a VAT charge on the buyer's invoice. Under a VAT taxation system, all sellers collect the tax and then pay it to the government. The VAT gives sellers along the supply chain a direct economic motivation to collect the tax, thereby reducing the incidence of tax evasion.

Don't confuse the VAT with sales tax. Under a sales tax, the tax is collected only once at the consumer's point of purchase. The VAT tax, however, is collected every time a business purchases products from other businesses within the product's supply chain.

Why It Matters

The VAT is a highly efficient flat consumption tax that reduces the incidence of non-compliance. More than 100 countries have adopted it -- with rates ranging from 10% - 25%.

Investors who are looking for safer overseas investments should consider whether the prospective country uses a VAT, which indicates a more stable fiscal environment.